<PAGE>

                     SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D.C. 20549

                                FORM 10-Q

(Mark One)
    X          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) 
-----------         OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended March 31, 1997

                                    or

               TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
-----------         OF THE SECURITIES EXCHANGE ACT OF 1934

         For the transition period from               to              
                                        -------------    -------------

                        Commission File Number 0-12900

                        ALLIANCE PHARMACEUTICAL CORP.
          (Exact name of Registrant as specified in its charter)

New York                                14-1644018     
---------------------------------       ----------------------
(State or other jurisdiction            (I.R.S. Employer
of incorporation or organization)       Identification Number)

3040 Science Park Road
San Diego, California                   92121     
---------------------------------       ----------------------
(Address of principal                   Zip Code
executive offices)

Registrant's telephone number,
including area code:                    619-558-4300   
                                        ----------------------

Indicate by a check whether the registrant (1) has filed all reports required to
be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.

     Yes            X                        No                            
          ------------------------               ------------------------

As of May 1, 1997, Registrant had 30,479,896 shares of its Common Stock, $.01
par value, outstanding.


                                      1
<PAGE>


ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES

INDEX
-----                                                         Page No.
                                                              --------

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements  

     Condensed Consolidated Balance Sheets                        3

     Condensed Consolidated Statements of Operations              4

     Condensed Consolidated Statements of Cash Flows              5

     Notes to Condensed Consolidated Financial Statements         6

Item 2. Management's Discussion and Analysis of 
 Financial Condition and Results of Operations                    9

PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K                         14


                                      2
<PAGE>

Item 1. Financial Statements

     ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
     CONDENSED CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------------

                                              MARCH 31,         JUNE 30,
                                                1997              1996
                                             -------------    -------------
                                             (UNAUDITED)         (NOTE)
ASSETS
CURRENT ASSETS:

     Cash and cash equivalents               $  10,145,000    $   9,480,000
     Short-term investments                     62,942,000       61,921,000
     Research revenue receivable                 6,750,000        5,750,000
     Other current assets                        2,016,000        1,803,000
                                             -------------    -------------
          Total current assets                  81,853,000       78,954,000

PROPERTY, PLANT AND EQUIPMENT - NET             14,843,000       12,390,000
PURCHASED TECHNOLOGY - NET                      14,780,000       15,966,000
OTHER ASSETS - NET                               1,000,000        1,033,000
                                             -------------    -------------
                                             $ 112,476,000    $ 108,343,000
                                             -------------    -------------
                                             -------------    -------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable                        $   1,760,000     $  2,189,000
     Accrued expenses                            2,728,000        2,801,000
     Payable for acquired in-process            10,078,000
       technology
     Current portion of long-term debt           1,351,000          720,000
                                             -------------    -------------
          Total current liabilities             15,917,000        5,710,000

LONG-TERM DEBT                                   3,211,000          945,000
OTHER                                              152,000          221,000

STOCKHOLDERS' EQUITY:
   Preferred stock - $.01 par value; 
     5,000,000 shares authorized;
     200,000 shares of Series C outstanding at  
     March 31, 1997 and June 30, 1996                2,000            2,000
   Common stock - $.01 par value; 
     50,000,000 shares authorized; 
     30,478,736 and 30,001,918 shares
     issued and outstanding at 
     March 31, 1997 and June 30, 1996,
     respectively                                  305,000          300,000
   Additional paid-in capital                  319,375,000      313,397,000
   Accumulated deficit                        (226,486,000)    (212,232,000)
                                             -------------    -------------
          Total stockholders' equity            93,196,000      101,467,000
                                             -------------    -------------
                                             $ 112,476,000    $ 108,343,000
                                             -------------    -------------
                                             -------------    -------------

Note:  The balance sheet at June 30, 1996 has been derived from the audited 
       financial statements at that date but does not include all of the 
       information and footnotes required by generally accepted accounting 
       principles for complete financial statements.

SEE ACCOMPANYNG NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                      3
<PAGE>

     ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                          THREE MONTHS ENDED            NINE MONTHS ENDED
                                                              MARCH 31,                     MARCH 31,
                                                         1997           1996           1997           1996
                                                      ------------   ------------  -------------   ------------
                                                             (Unaudited)                   (Unaudited)
     <S>                                              <C>            <C>           <C>            <C>
     REVENUES:
        License and research revenue                  $ 6,836,000    $ 7,200,000   $ 34,707,000   $ 11,310,000
        Product revenue - net                               2,000         32,000          7,000        108,000
                                                      ------------   ------------  -------------   ------------
                                                        6,838,000      7,232,000     34,714,000     11,418,000

     OPERATING EXPENSES:
        Research and development                       10,380,000      8,842,000     30,100,000     24,404,000
        General and administrative                      2,093,000      2,198,000      5,962,000      5,583,000
        Acquired in-process technology                          -              -     16,020,000              -
                                                      ------------   ------------  -------------   ------------
                                                       12,473,000     11,040,000     52,082,000     29,987,000
                                                      ------------   ------------  -------------   ------------
     LOSS FROM OPERATIONS                              (5,635,000)    (3,808,000)   (17,368,000)   (18,569,000)

     INVESTMENT INCOME AND OTHER - NET                  1,140,000        137,000      3,112,000        567,000
                                                      ------------   ------------  -------------   ------------
     NET LOSS                                          (4,495,000)    (3,671,000)   (14,256,000)   (18,002,000)

     DIVIDENDS ON PREFERRED STOCK                               -       (188,000)             -       (563,000)
                                                      ------------   ------------  -------------   ------------
     NET LOSS APPLICABLE TO COMMON SHARES             $(4,495,000)   $(3,859,000)  $(14,256,000)  $(18,565,000)
                                                      ------------   ------------  -------------   ------------
                                                      ------------   ------------  -------------   ------------

     NET LOSS PER COMMON SHARE                        $     (0.15)   $     (0.15)  $      (0.47)  $      (0.75)
                                                      ------------   ------------  -------------   ------------
                                                      ------------   ------------  -------------   ------------

     WEIGHTED AVERAGE NUMBER OF 
     SHARES OUTSTANDING                                30,259,000     25,023,000     30,154,000     24,908,000
                                                      ------------   ------------  -------------   ------------
                                                      ------------   ------------  -------------   ------------
</TABLE>

     SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                      4

<PAGE>

     ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                        NINE MONTHS ENDED
                                                                                             MARCH 31,
                                                                                   1997                    1996
                                                                              ----------------       -----------------
                                                                                            (UNAUDITED)
     <S>                                                                      <C>                     <C>
     OPERATING ACTIVITIES:
       Net loss                                                               $  (14,256,000)         $  (18,002,000)
       Adjustments to reconcile net loss to net cash used in operations:
          Depreciation and amortization                                            2,885,000               2,313,000
          Charge for acquired in-process technology                               16,020,000                 757,000
          Non-cash compensation                                                            -                 277,000
          Changes in operating assets and liabilities:
            Research revenue receivable                                           (1,000,000)                 60,000
            Other assets                                                              31,000                  53,000
            Accounts payable and accrued expenses and other                         (572,000)                283,000
                                                                             ----------------       -----------------
     Net cash provided by (used in) operating activities                           3,108,000             (14,259,000)
                                                                              ----------------       -----------------

     FINANCING ACTIVITIES:
       Issuance of common stock and preferred stock                                  884,000              23,979,000
       Proceeds from long-term debt                                                3,493,000               2,208,000
       Principal payments on long-term debt                                         (596,000)               (375,000)
                                                                              ----------------       -----------------
     Net cash provided by financing activities                                     3,781,000              25,812,000
                                                                              ----------------       -----------------

     INVESTING ACTIVITIES:
       Short-term investments                                                     (1,269,000)              1,561,000
       Property, plant and equipment                                              (4,360,000)             (3,073,000)
       Payment for acquired in-process technology                                   (595,000)                      -
                                                                              ----------------       -----------------
     Net cash used in investing activities                                        (6,224,000)             (1,512,000)
                                                                              ----------------       -----------------

     INCREASE IN CASH AND CASH EQUIVALENTS                                           665,000              10,041,000
     CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                              9,480,000              12,519,000
                                                                              ----------------       -----------------
     CASH AND CASH EQUIVALENTS AT END OF PERIOD                                $  10,145,000           $  22,560,000
                                                                              ----------------       -----------------
                                                                              ----------------       -----------------

     SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING 
       AND FINANCING ACTIVITIES:
     Payable for acquired in-process technology                                $  10,078,000
     Issuance of common stock in connection with
       acquired in-process technology                                          $   5,347,000
     Issuance of common stock and warrants in connection with 
       acquisition of patent rights and related documents                                              $     757,000
     Preferred stock dividends                                                                         $     563,000

</TABLE>

     SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                      5
<PAGE>

ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION 

     Alliance Pharmaceutical Corp. ("Alliance") and its subsidiaries 
(collectively, the "Company") are engaged in identifying, designing, and 
developing novel medical and pharmaceutical products.

PRINCIPLES OF CONSOLIDATION 

     The consolidated financial statements include the accounts of Alliance, its
wholly owned subsidiary Astral, Inc. and its recently acquired subsidiary MDV
Technologies, Inc. from the acquisition date of November 1996, and its majority-
owned subsidiaries, Talco Pharmaceutical, Inc. and Applications et Transferts de
Technologies Avancees.  All significant intercompany accounts and transactions
have been eliminated.

INTERIM CONDENSED FINANCIAL STATEMENTS

     The condensed consolidated balance sheet as of March 31, 1997, the
condensed consolidated statements of operations for the three and nine months
ended March 31, 1997 and 1996, and the condensed consolidated statements of cash
flows for the nine months ended March 31, 1997 and 1996 are unaudited.  In the
opinion of management, such unaudited financial statements include all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the results for the periods presented.  Interim results are not
necessarily indicative of the results to be expected for the full year.  The
financial statements should be read in conjunction with the Company's
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended June 30, 1996.

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the consolidated financial
statements.  Actual results could differ from those estimates.

CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS

     Cash, cash equivalents, and short-term investments consist of highly liquid
debt instruments. The Company considers instruments with an original maturity of
three months or less to be cash equivalents.  Management has classified the
Company's cash equivalents and short-term investments as available-for-sale
securities in the accompanying financial statements.  Available-for-sale
securities are carried at fair value, with the unrealized gains and losses, net
of tax, reported in stockholders' equity.

CONCENTRATION OF CREDIT RISK

     Cash, cash equivalents, and short-term investments are financial
instruments which potentially subject the Company to concentration of credit
risk.  The Company invests its excess cash primarily in U.S. government
securities and marketable debt securities of financial

                                      6
<PAGE>

institutions and corporations with strong credit ratings.  The Company has 
established guidelines relative to diversification and maturities to maintain 
safety and liquidity. These guidelines are reviewed periodically and modified 
to take advantage of trends in yields and interest rates.  The Company has 
not experienced any material losses on its investments.

PROPERTY, PLANT, EQUIPMENT, AND OTHER ASSETS 

     Buildings, furniture, and equipment are stated at cost and depreciation is
computed using the straight-line method over the estimated useful lives of 3 to
25 years.  Leasehold improvements are amortized using the straight-line method
over the shorter of the estimated useful lives of the assets or the lease term.
Technology and patent rights are amortized using the straight-line method over 5
to 20 years.

PURCHASED TECHNOLOGY 

     The purchased technology was primarily acquired as a result of the 
merger of Fluoromed Pharmaceutical, Inc. into a subsidiary of the Company in 
fiscal 1989.  The technology acquired is the Company's core perfluorochemical 
("PFC") technology and was valued based on an analysis of the present value 
of future earnings anticipated from this technology at that time.  The 
Company identified alternative future uses for the PFC technology, including 
OXYGENT-TM- (temporary blood substitute) and LIQUIVENT-Registered Trademark- 
(intrapulmonary oxygen carrier) products.  Purchased technology also includes 
$2 million for technology capitalized as a result of the acquisition of 
BioPulmonics, Inc. ("BioPulmonics") in December 1991.  Since the acquisition, 
an alternative future use of the purchased technology has been pursued by the 
Company.  An intrapulmonary drug delivery system using the PFC-based liquid 
as a carrier (or dispersing agent) is being developed by Alliance from the 
liquid ventilation technology.  BioPulmonics was merged into Alliance in 
March 1996.

     The PFC technology is the basis for the Company's main drug development
programs and is being amortized over a 20-year life. Accumulated amortization
for this PFC technology was $9.4 million and $8.5 million at March 31, 1997 and
June 30, 1996, respectively.  The technology purchased with the acquisition of
BioPulmonics is being amortized over five to seven years, and accumulated
amortization was $1.1 million and $.8 million at March 31, 1997 and
June 30, 1996, respectively. Amortization of purchased technology is included in
research and development expense.

     The carrying value of purchased technology is reviewed periodically based
on the projected cash flows to be received from license fees, milestone
payments, royalties and other product revenues.  If such cash flows are less
than the carrying value of the purchased technology, the difference will be
charged to expense.

LONG-TERM DEBT

     The Company entered into a loan and security agreement in August 1995 under
which the Company received $2.2 million at an interest rate of 10.84%.  Amounts
borrowed under the agreement are secured by fixed assets, and are being repaid
over three years.  If certain financial covenants are not satisfied, the note
may become due and payable.  On March 31, 1997, the balance outstanding on this
loan was $1.1 million.

                                      7
<PAGE>

     The Company entered into two loan and security agreements with a bank in
January 1997 under which the Company received $3.5 million at the bank's prime
rate plus 1.5%.  Amounts borrowed under the two agreements are $2 million and
$1.5 million, are secured by certain fixed assets, and are to be repaid over
three and four years, respectively.  If certain financial covenants are not
satisfied, the notes may become due and payable.  On March 31, 1997, the balance
outstanding on these loans was $3.4 million.

PREFERRED STOCK

     On March 31, 1997, the Company had 200,000 shares of its Series C
Convertible Preferred Stock outstanding.  The Series C shares do not have
dividend or voting rights.  The Series C shares convert automatically on June
30, 1997, into 345,327 common shares.  Prior to June 29, 1997, Hoechst Marion
Roussel, Inc. ("HMRI"), the holder of Series C shares, may, if the license
agreement between the Company and HMRI is terminated, cause the Company to
redeem the Series C Preferred Stock for $15 million, payable in cash or the
Company's common stock at Alliance's election, any time on or before the
expiration of five years following the redemption date.

REVENUE RECOGNITION

     Revenue under collaborative license and research agreements is recognized
as services are provided under such agreements.  Revenue from product sales is
recognized as products are shipped.

RESEARCH AND DEVELOPMENT EXPENSES

     Research and development expenditures are charged to expense as incurred.

NET LOSS PER COMMON SHARE 

     Net loss per common share is based on the weighted average number of shares
outstanding during the respective periods and does not include common stock
equivalents since their effect on the net loss per common share would be anti-
dilutive.

NEW ACCOUNTING STANDARDS

     On July 1, 1996, the Company adopted Financial Accounting Standards Board
Statement Number 123, "Accounting for Stock-Based Compensation."  As permitted
by the Statement, the Company has elected to retain its current implicit value-
based method and will be required to disclose the pro forma effect of using the
fair value-based method to account for its stock-based compensation in its
fiscal 1997 financial statements.

2. ACQUIRED IN-PROCESS TECHNOLOGY

     In November 1996, the Company acquired MDV Technologies, Inc. ("MDV") by 
a merger (the "MDV Merger") of a wholly owned subsidiary of the Company into 
MDV. MDV is engaged in the development of a thermo-reversible gel 
(FLOGEL-Registered Trademark-) intended for use as an anti-adhesion treatment 
for persons undergoing abdominal or pelvic surgeries.  FLOGEL is applied in a 
cold, liquid form and becomes a gel at body temperature.  MDV has obtained 
preliminary human safety data with the product's current formulation, and has 
performed preclinical studies on additional formulations. 

                                      8
<PAGE>

     The consideration payable in the MDV Merger consists of $15.5 million, of
which $3 million was paid on November 13, 1996, $2.5 million was paid on
February 13, 1997, and $2.5 million which will be paid on each of May 13 and
August 13, 1997, and $5 million which will be paid on November 13, 1997.  The
initial $3 million payment, and the February 1997 $2.5 million payment were made
through the delivery of 191,344 shares and 191,531 shares of common stock,
respectively, of the Company.  Additionally, the Company will pay up to $20
million if advanced clinical development or licensing milestones are achieved in
connection with MDV's technology.  The Company will also make certain royalty
payments on the sales of products, if any, developed from such technology.  The
Company may buy out its royalty obligation for $10 million at any time prior to
the first anniversary of the approval by U.S. regulatory authorities of any
products based upon MDV technology (increasing thereafter over time).  All of
such payments to the former MDV shareholders may be made in cash or, at the
Company's option, shares of the Company's common stock, except for the royalty
obligations which will be payable only in cash.  The Company has not determined
whether subsequent payments (other than royalties) will be made in cash or in
common stock or, if made in cash, the source of such payments.  There can be no
assurance that any of the contingent payments will be made, because they are
dependent on future developments which are inherently uncertain.   

     The Company has accounted for the MDV Merger as a purchase, and recorded a
one-time charge in the second quarter ended December 31, 1996 for $16 million,
including the $15.5 million scheduled payments described above and related
transaction costs.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (References to years are to the Company's fiscal years ended 
June 30.)

     Alliance has devoted substantial resources to research and development 
related to its pharmaceutical products.  The Company has been unprofitable 
since inception and expects to continue to spend substantial amounts on 
research and development, preclinical testing and clinical trials, regulatory 
activities, and commercial manufacturing start-up. The Company has entered 
into collaborative research and development agreements with pharmaceutical 
companies for OXYGENT and LIQUIVENT, and is actively searching for a similar 
arrangement for IMAGENT-Registered Trademark- US, an ultrasound contrast 
agent currently under development.  The arrangements with its existing 
partners require them to reimburse the Company for substantially all of its 
development expenses incurred for the respective products and to make 
milestone payments to the Company upon the achievement of certain product 
development events, followed by royalties on sales at commercialization.  If 
the Company enters into a similar arrangement for IMAGENT US, and some of the 
development events under its existing agreements are achieved and the 
relevant payments made, the Company could become profitable on a periodic 
basis over the next two years, prior to the commercialization of products.  
However, the timing and amounts of such license fees and milestone payments, 
if any, cannot be predicted with certainty and may not occur if product 
development events are not achieved.  There can be no assurance that the 
Company will be able to achieve profitability at all or on a sustained basis. 

     See Note 2 to Condensed Consolidated Financial Statements for information
related to the November 1996 acquisition of MDV by the Company.

                                      9
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     Through March 1997, the Company financed its activities primarily from
public and private sales of equity and funding from collaborations with
corporate partners. To date, the Company's revenue from the sale of products has
not been significant.  

     In January 1997, the Company entered into two loan and security agreements
with a bank under which the Company received $3.5 million at the bank's prime
rate plus 1.5%.  Amounts borrowed under the two agreements are $2 million and
$1.5 million, are secured by certain fixed assets and are to be repaid over
three and four years, respectively.  If certain financial covenants are not
satisfied, the notes may become due and payable.  On March 31, 1997, the balance
outstanding on these loans was $3.4 million.

     In April 1996, the Company completed a public offering of 2.9 million
shares of newly issued common stock, resulting in net proceeds to the Company of
$44 million.  

     In February 1996, the Company entered into a license agreement with HMRI,
which provides HMRI with exclusive worldwide development and marketing rights to
the intratracheal administration of liquids, including LIQUIVENT, which perform
bronchoalveolar lavage or liquid ventilation.  The product is being developed
jointly by Alliance and HMRI, with HMRI responsible for substantially all of the
costs of development and marketing. In conjunction with the HMRI license
agreement, HMRI purchased shares of Series B Preferred Stock and Series C
Preferred Stock for $22 million.  In addition, HMRI paid Alliance an initial
license fee of $5 million and agreed to pay further license fees, milestone
payments, and royalties on product sales.  HMRI also received a five-year
warrant to acquire 300,000 shares of common stock at $20 per share.  In June
1996, the Series B Preferred Stock and accumulated dividends thereon were
converted into 759,375 shares of common stock of the Company.

     In August 1995, the Company entered into a loan and security agreement
under which the Company received $2.2 million.  Amounts borrowed under the
agreement are secured by property and equipment, and are being repaid over three
years.  If certain financial covenants are not satisfied, the debt may become
due and payable.  On March 31, 1997, the balance outstanding on this loan was
$1.1 million.  The Company has financed substantially all of its office and
research facilities and related leasehold improvements under operating lease
arrangements.

     In April 1995, the Company completed offerings of 3.2 million shares of
newly issued common stock, resulting in net proceeds to the Company of
$14.3 million.

     In August 1994, the Company entered into a license agreement with Ortho
Biotech, Inc. and The R.W. Johnson Pharmaceutical Research Institute, affiliates
of Johnson & Johnson (collectively, "Ortho"), which provides Ortho with
exclusive worldwide development and marketing rights to the Company's injectable
PFC emulsions capable of transporting oxygen for therapeutic use, including
OXYGENT.  Under the Ortho license agreement, Ortho paid to Alliance an initial
fee of $4 million and agreed to make other payments upon the achievement of
certain milestones.  Ortho is responsible for substantially all the remaining
costs of developing and marketing the products and will pay Alliance a royalty
based upon sales of products after commercialization. In conjunction with the
Ortho license agreement, Johnson & Johnson Development Corporation ("J&JDC"), an
affiliate of Johnson & Johnson, purchased Series A Preferred Stock for
$15 million and obtained a three-year warrant to purchase 300,000 shares of

                                     10
<PAGE>

common stock at $15 per share.  In June 1996, the Series A Preferred Stock and
accumulated dividends thereon were converted into 815,625 shares of common stock
of the Company, and J&JDC exercised its warrant for 300,000 shares.  In December
1996, Ortho paid to Alliance a $15 million milestone payment pursuant to the
Ortho license agreement.

     The Company had net working capital of $65.9 million at March 31, 1997,
compared to $73.2 million at June 30, 1996.  The Company's cash, cash
equivalents, and short-term investments increased to $73.1 million at
March 31, 1997, from $71.4 million at June 30, 1996.  The increase resulted
primarily from cash provided by operations of $3.1 million, and proceeds under
the January 1997 loan and security agreements of $3.5 milllion, net of property
additions of $4.4 million and payments for acquired in-process technology of
$0.6 million.  The Company's operations to date have consumed substantial
amounts of cash, and are expected to continue to do so for the foreseeable
future.

     In December 1993, in order to obtain a commitment for a long-term supply of
raw material for both clinical trials and anticipated future production
requirements, the Company entered into an agreement with a supplier under which
the Company was obligated to make payments to the supplier through May 1997
based, in part, upon the achievement of certain milestones.  Based upon the
supplier's intent to negotiate directly with the Company's existing and future
collaborative partners, that agreement was modified in July 1995 to terminate
certain commitments by both parties.  Some or all of the Company's payment
obligations that remain may be reimbursed to the Company by existing
collaborative partners.

     The Company continually reviews its product development activities in an
effort to allocate its resources to those product candidates that the Company
believes have the greatest commercial potential.  Factors considered by the
Company in determining the products to pursue include projected markets and
need, potential for regulatory approval and reimbursement under the existing
health care system, status of its proprietary rights, technical feasibility,
expected and known product attributes, and estimated costs to bring the product
to market.  Based on these and other factors, the Company may, from time to
time, reallocate its resources among its product development activities. 
Additions to products under development or changes in products being pursued can
substantially and rapidly change the Company's funding requirements.

     The Company expects to incur substantial additional expenditures 
associated with product development.  The Company will seek additional 
collaborative research and development relationships with suitable corporate 
partners for its non-licensed products.  There can be no assurance that such 
relationships, if any, will successfully reduce the Company's funding 
requirements.  Additional equity or debt financing may be required, and there 
can be no assurance that funds from these sources will be available on 
reasonable terms, if at all. If adequate funds are not available, the Company 
may be required to delay, scale back, or eliminate one or more of its product 
development programs, or obtain funds through arrangements with collaborative 
partners or others that may require the Company to relinquish rights to 
certain of its technologies, product candidates, or products that the Company 
would not otherwise relinquish.

     Alliance anticipates that its current capital resources, expected 
revenues from the Ortho license agreement, HMRI license agreement, and 
investments, will be adequate to satisfy its capital requirements for at 
least the next 24 months. The Company's future capital requirements will 
depend on many factors, including continued scientific progress in its 
research and

                                     11
<PAGE>

development programs, progress with preclinical testing and clinical trials, 
the time and cost involved in obtaining regulatory approvals, patent costs, 
competing technological and market developments, changes in existing 
collaborative relationships, the ability of the Company to establish 
additional collaborative relationships, and the cost of manufacturing 
scale-up.

     While the Company believes that it can produce materials for clinical
trials and the initial market launch for OXYGENT at its existing San Diego,
California facility and for LIQUIVENT at its Otisville, New York facility, it
may need to expand its commercial manufacturing capabilities for these products
in the future.  The Company is currently manufacturing IMAGENT US for clinical
trials at its San Diego facility and will need to design and prepare a larger
facility to accommodate initial market launch of IMAGENT US.  Expansion of
manufacturing capacity for any of its products may occur in stages, each of
which would require regulatory approval, and product demand could at times
exceed supply capacity.  The Company has not selected a site or obtained any
regulatory approvals for construction of a commercial production facility for
its products, nor can there be any assurance that it will be able to do so.  The
projected location and completion date of any production facility will depend
upon regulatory and development activities and other factors.  The Company
cannot predict the amount that it will expend for the construction of such a
production facility, and there can be no assurance as to when or whether the
U.S. Food and Drug Administration will determine that such facility complies
with Good Manufacturing Practices.  Construction of a facility will depend on
regulatory approvals, product development, and capital resources, among other
things.  The Ortho license agreement provides an option to Ortho to elect to
manufacture the emulsion products referred to therein, or to require the Company
to manufacture such products at a negotiated price.  The HMRI license agreement
requires the Company to manufacture LIQUIVENT at its Otisville facility for a
period of time after market launch and to sell the product to HMRI at a
negotiated price.  HMRI will be responsible for establishing production capacity
beyond the maximum capacity of the Otisville facility.

     Except for historical information, the statements made herein and elsewhere
are forward looking.  The Company wishes to caution readers that these
statements are only predictions and that the Company's business is subject to
significant risks.  The factors discussed herein and other important factors, in
some cases have affected, and in the future could affect, the Company's actual
results and could cause the Company's actual consolidated results for 1997, and
beyond, to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.  These risks include the
inability to enter into collaborative relationships to further develop and
commercialize the Company's products, changes in any such relationships, or the
inability of any collaborative partner to adequately commercialize any of the
Company's products; the uncertainties associated with the lengthy regulatory
approval process; obtaining and enforcing patents important to the Company's
business; and possible competition from other products.  Furthermore, even if
the Company's products appear promising at an early stage of development, they
may not reach the market for a number of important reasons.  Such reasons
include, but are not limited to, the possibilities that the potential products
will be found ineffective during clinical trials, failure to receive necessary
regulatory approvals, difficulties in manufacturing on a large scale, failure to
obtain market acceptance, and the inability to commercialize because of
proprietary rights of third parties.  The research, development, and market
introduction of new products will require the application of considerable
technical and financial resources, while revenues generated from such products,
assuming they are developed successfully, may not be

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<PAGE>

realized for several years. Other material and unpredictable factors which 
could affect operating results include, without limitation, the uncertainty 
of the timing of product approvals and introductions and sales growth; the 
ability to obtain necessary raw materials at cost effective prices or at all; 
the effect of possible technology and/or other business acquisitions or 
transactions; and the increasing emphasis on controlling health care costs 
and potential legislation or regulation of health care pricing.

RESULTS OF OPERATIONS

     NINE MONTHS ENDED MARCH 31, 1997 AS COMPARED WITH NINE MONTHS ENDED
MARCH 31, 1996

     The Company's license and research revenue increased by $23.4 million to
$34.7 million for the nine months ended March 31, 1997, compared to $11.3
million for the nine months ended March 31, 1996, primarily as a result of the
$15 million milestone payment from Ortho under the Ortho license agreement, and
research revenue from the HMRI license agreement.  The Company expects research
revenue to continue at the higher levels in 1997 compared to 1996.

     Research and development expenses increased by 23% to $30.1 million for the
nine months ended March 31, 1997, compared to $24.4 million for the nine months
ended March 31, 1996.  The increase in expenses was primarily due to a $2.4
million increase in payments to outside researchers for pre-clinical and
clinical trials and other product development work, a $1.5 million increase in
staffing costs, a $500,000 increase in the usage of raw materials and supplies,
a $700,000 increase in depreciation expense, and a $300,000 increase in repairs
and maintenance expenses, as well as other increases related to the Company's
research and development activities.  The expenses for the nine months ended
March 31, 1996 included a $757,000 charge arising from the acquisition of
certain PFC patents, patent rights, and related documents in exchange for 50,000
shares of the Company's common stock and a five-year warrant to purchase up to
an additional 100,000 shares of the Company's common stock at $10 per share.

     General and administrative expenses increased by 7% to $6 million for the
nine months ended March 31, 1997, compared to $5.6 million for the nine months
ended March 31, 1996.  The increase in general and administrative expenses was
primarily due to increases in staffing costs and professional fees.

     The Company has accounted for the acquisition of MDV as a purchase, and has
recorded a one-time charge in the nine months ended March 31, 1997 of $16
million, including the $15.5 million scheduled payments and related transaction
costs.

     Investment income and other was $3.1 million for the nine months ended
March 31, 1997, compared to $567,000 for the nine months ended March 31, 1996. 
The increase in investment revenue was primarily a result of higher average cash
balances as a result of the Ortho milestone payment received, the February 1996
HMRI transaction, and the April 1996 stock offering.

     Alliance expects to continue to incur substantial and increasing expenses
associated with its research and development programs.  Operating losses may
fluctuate from quarter to quarter as a result of differences in the timing of
revenues earned and expenses incurred and such fluctuations may be substantial. 
The Company's historical results are not necessarily indicative of future
results.

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<PAGE>

     THREE MONTHS ENDED MARCH 31, 1997 AS COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1996

     The Company's license and research revenue decreased by $0.4 million to
$6.8 million for the three months ended March 31, 1997, compared to $7.2 million
for the three months ended March 31, 1996.

     Research and development expenses increased by 18% to $10.4 million for the
three months ended March 31, 1997, compared to $8.8 million for the three months
ended March 31, 1996.  The increase in expenses was primarily due to a $100,000
increase in payments to outside researchers for pre-clinical and clinical trials
and other product development work, a $500,000 increase in staffing costs, a
$100,000 increase in the usage of raw materials and supplies, and a $300,000
increase in depreciation expense, as well as other increases related to the
Company's research and development activities.

     General and administrative expenses decreased by 5% to $2.1 million for the
three months ended March 31, 1997, compared to $2.2 million for the three months
ended March 31, 1996.

     Investment income and other was $1.1 million for the three months ended
March 31, 1997, compared to $137,000 for the three months ended March 31, 1996. 
The increase in investment revenue was primarily a result of higher average cash
balances as a result of the Ortho milestone payment received, the February 1996
HMRI transaction, and the April 1996 stock offering.  

PART II  OTHER INFORMATION:

Item 6.  Exhibits and Reports on Form 8-K

(a)      There are no exhibits.

(b)      There were no reports Form 8-K

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                                  ALLIANCE PHARMACEUTICAL CORP.

                                                            (Registrant)

                                                       /s/ Theodore D. Roth
                                                    -------------------------
                                                         Theodore D. Roth
                                                      Executive Vice President
                                                     and Chief Financial Officer
Date:  May 8, 1997




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